UK class actions v. ads around the corner?

Just as a US court halted a class action against allegedly misleading Listerine ads, HM Government consults on a plan to allow consumer class actions in the UK against delinquent traders. Should advertisers and agencies be checking their insurance cover?

Topic: Government launches consultation on allowing class-action consumer cases to be brought in UK Courts

Who: Department of Trade and Industry

Where: UK

When: July 2006

What happened:

Disgruntled customers may soon be able to take their complaints to court en masse if the Department of Trade and Industry's plans to allow designated consumer groups to arrange class-action lawsuits come to fruition. The DTI launched a second consultation paper on the 12 July 2006, entitled "Representative Actions in Consumer Protection Legislation", in order to assess the public's views on the prospect. Should the proposals be brought into effect, it would be the first time that such class-actions would be allowed in UK courts.

The DTI is proposing that consumer groups allowed to bring the legal actions must be designated in advance. Organisations would have to show they have consumers' wellbeing rather than profit as their motivation. There is significant emphasis on how to discourage inappropriate or spurious cases and thus avoid a US-style compensation culture, perceived to be so undesirable. The consultation focuses on gleaning stakeholder's views on issues such as:

Should representative actions only be brought by designated bodies?

Should permission be required from a court before bringing a case? (the DTI's current thinking is that the court's leave should be required) and

Should lawsuits be launched on behalf of all consumers who may have been affected (with any damages awarded paid to consumers when identified) or only for named consumers)?

Leading consumer groups have welcomed the proposals. The Trading Standards Institute (TSI) and the National Consumer Council (NCC) say they are studying the proposals with a view to applying for the designated status that would allow them to take representative action cases to court. The NCC is even hopeful that the legislation could act as a deterrent to companies, as well as helping consumers for whom even the small claims court is an expensive option. This could also have the effect that companies would be motivated to invest more in their customer-service operations in an attempt to calm displeased consumers before they become tempted to go down the legal route.

The consultation comes at a time when there is speculation that class-actions may possibly be losing momentum in the US. A Californian appeal court has recently denied class-action status to a lawsuit against the Listerine brand, now owned by Johnson & Johnson, which claimed that the mouthwash was misleadingly advertised as being "as effective as floss". The court said that plaintiffs now had to show specifically that everyone in the class who had bought Listerine did so because they relied on the allegedly false claim regarding dental floss – signigicantly reducing the scope for the claim to continue.

Why this matters

If the proposals become law, it would open up a whole new route for consumers to seek redress for their grievances. This obviously could expose brands to claims that previously would not have been brought by individual consumers due to the perceived complexities of the legal system and their relatively low individual losses compared to potentially high legal fees. This is good news for consumers who could bring claims where before it was impractical and also could potentially motivate offending companies to take legitimate complaints seriously. However, it is possibly not such good news for those brands who find themselves fighting a claim against an unruly and angry class!